Woodside Energy guidance for its 2023 oil and gas production is ‘lower than expectations’
Woodside’s production forecast for 2023 was lower than the market had expected while one of the company’s top executives has left for Fortescue.
Project delays have forced Woodside Energy to deliver lower-than-expected guidance for its 2023 oil and gas production following its $40bn merger with BHP Petroleum.
The West Australian energy producer disappointed the market after forecasting 180-190 million barrels of oil equivalent, falling short of a 199 million boe consensus estimates and 203 million boe and 210 million boe from Barrenjoey and RBC Capital Markets respectively.
The blame in part lies with delays in delivering major projects.
Woodside pointed to supplies from its Sangomar development in West Africa’s Senegal arriving six months later than the market had anticipated, with volumes to now kick in during 2024.
The Mad Dog 2 oil expansion in the Gulf of Mexico will start up in mid-2023, along with a four-week outage at the Pluto LNG plant by June next year.
On Tuesday, Barrenjoey brokers downgraded Woodside to underweight, citing the risk of project delays and budget pressures, preferring Santos as its top sector pick.
“We think the cracks from execution risks are starting to show for Woodside given the Sangomar start-up has been delayed from 2023 to the second half of 2023 in August,” Barrenjoey analyst Dale Koenders said in a note issued before Tuesday’s guidance update from Woodside.
The broker also pointed to commissioning of the Sangomar offshore production ship moving from China to Singapore to mitigate pandemic-related labour constraints. Still, Woodside said construction of the production facility was now complete and it was about 70 per cent of the way through the overall delivery of Senegal’s offshore oil project.
Woodside also lost one of its top executives to Fortescue Metals, with Fiona Hick appointed the iron ore giant’s chief executive after serving as Woodside’s executive vice-president for Australian operations since 2019.
Woodside expects to spend up to $US6.5bn ($9.7bn) in 2023 with half that money on its Scarborough gas project offshore WA, 20 per cent on Senegal and the balance evenly spread between its Gulf of Mexico and Caribbean businesses, along with Australia.
The company’s shares initially dived by 5 per cent on Tuesday before recovering to close 0.35 per cent, or 13c, softer at $36.83.
One area where Woodside may be able to cash in is through its exposure to the LNG spot market, flagging that up to a quarter of its 2023 produced LNG would be sold at prices linked to gas hub indices rather than the traditional oil price linkage.
Still, both Macquarie and Credit Suisse said the 20-25 per cent of spot price sales flagged by the company – the same as in 2022 – was probably below market expectations. “It’s a small miss but it could have an outsized impact given higher LNG prices with a several hundred million dollar earnings impact with LNG at $US40 per million British thermal units,” Credit Suisse’s Saul Kavonic said.
Woodside earlier this year made the decision to can a selldown of its stake in the Sangomar oil project and will now retain its stake at 82 per cent. It also noted caution on a long-held desire to sell half its Scarborough gas project, saying it would not engage in a “fire sale” of any stake.
It plans to bring the development online by 2026 through an expansion of the Pluto LNG plant, dubbed Pluto-2, which it has recently started constructing, and said all major materials including compressors, generators and turbines had been secured.
The gas giant plans to increasingly divert spending to hydrogen and carbon capture this decade as it seeks to pivot into clean energy.
It secured a win on Tuesday after trumping Fortescue in its bid for a slice of the action in New Zealand’s proposed multibillion-dollar green hydrogen project.
Woodside has been selected preferred developer in the Southern Green Hydrogen project in New Zealand’s Southland region, tipped to be the world’s largest production facility and estimated to cost about $4.5bn.
The decision follows negotiations held since June.
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